Tuesday, January 15, 2008

Frank Jackson's Suit Against Banks is an Empty Gesture

Last week, everyone cheered as Mayor Frank Jackson announced that the city had filed a lawsuit against 21 banks for predatory lending. Finally, Cleveland was taking to task the thieves who that have turned our city into a ghost town, thanks to destructive subprime mortgages that have forced thousands into foreclosure.
The only problem is that the lawsuit comes a few years too late, says Mark Seifert, executive director of the East Side Organizing Project, which has gone toe-to-toe with predatory lenders for the past decade. “This lawsuit would have been really timely three years ago,” Seifert says.
Seifert points out that several of the banks being sued have already gone out of business, thanks to years of bad press and multi-million dollar settlements with Attorneys General. Ameriquest, once the city’s worst subprime lender, went out of business in August. And the day before the lawsuit was filed, City Bank announced that it was acquiring Countrywide, accused of funneling customers into bad loans simply based on race. “I don’t know how you sue somebody that’s out of business,” Seifert says…
In fact, Seifert says that predatory lending doesn’t even exist in Cleveland anymore. “That crap stopped a year ago,” Seifert says. “There aren’t any bad loans being made. Sure, one or two, but by and large the brokers are out of business today. What we have now are the foreclosures and the ARM rate resets.”
Maybe that’s why the city is playing up its targets on Wall Street, from Goldman Sachs Group and Morgan Stanley to Merrill Lynch and Deutsche Bank. The lawsuit describes these institutions as the backbone of the subprime lending industry. Though they didn’t make any loans, they provided the financing for them by buying up bad loans after they were made and reaping the profits of inflated interest rates and padded fees. “There’s no question that these guys got the most amount of profit,” Seifert says. “They are certainly the ones with the pockets, the ones now holding the paper.”
Oddly enough, two major players are missing from the lawsuit – Cleveland-based National City and KeyBank. Both institutions sold off their subprime lending arms in 2006. But if Jackson can go after Ameriquest, which stopped doing business in Cleveland around the same time as Key and National City, why can’t it go after its own? “They did most of their damage elsewhere,” Seifert says.
(Jackson’s office did not respond to interview requests.)
In the end, the lawsuit feels less like real litigation and more like an empty gesture. The one-count complaint doesn’t contain a single legal citation. And any victory won’t likely fix the damage done to the Cleveland housing market or the homeowners now facing foreclosure. “They just waited until everyone lost their homes and then filed the suit,” Seifert says. “But I guess better late than never, right?” – Denise Grollmus